National Boulevard Bank of Chicago v. Makens

370 N.W.2d 183, 1985 S.D. LEXIS 307

• Court: South Dakota Supreme Court
• Decided: June 19, 1985
• Docket: Nos. 14263, 14272 and 14274
• Status: Published

Opinions

WOLLMAN, Justice.

FACTS AND PROCEDURAL HISTORY

This is an appeal by Clark County Cattle Company, one of the plaintiffs in this consolidated action. The other plaintiff, National Boulevard Bank of Chicago (Bank), obtained judgment against John J. Makens for $107,446.77. Bank is not appealing the judgment in its action; however, it served a notice of review (# 14272) supporting the appeal of Clark County Cattle Company. Defendants and appellees have also filed a notice of review (# 14724). We affirm.

John J. Makens and James Makens, Jr. were brothers who had an extensive history of speculation in various fields of economic enterprise. Their business activities included the fabrication of structural steel, the operation of a potato processing plant, and a corporation entitled Computer Micro Services, Inc. (CMS), of which more later. Their partnership in a farming operation in Clark County is the focal point of this appeal.

Prior to September 1967, the history of the Makens brothers’ farming activities was not unlike any other farming partnership involving the acquisition and building of such an operation by two brothers. Each partner contributed in his own way to the real estate holdings, which culminated in the acquisition of 5,850 acres of Clark County farmland, together with machinery and livestock.

When each of their several businesses began to fail, John and James endeavored to use the assets of one enterprise to save another. On September 8, 1967, they executed a mortgage in the amount of $132,-000.00 covering a tract of Makens property consisting of 2,672.85 acres. Subsequently, mortgages of $125,000.00 and $130,000.00 were executed on units of partnership property, and on May 18, 1970, all of the partnership real estate was mortgaged for $250,000.00. On April 22, 1972, an additional mortgage in the amount of $250,-000.00 was executed covering the real estate.

During this period, individual guarantees in the amount of $750,000.00 each were also given by John and James to the First National Bank of St. Paul to secure venture capital for several of the Makens enterprises. Against this backdrop of encumbrances and venture financing, John and James formed various corporations for the purpose of obtaining the required capital.

On June 18, 1969, John and James acquired ownership of stock in plaintiff Clark County Cattle Company (Cattle Company), the total outstanding stock which consisted of 30 shares. After the June 18, 1969, transaction, 15 shares were owned by one Harlan Palmquist and John and James owned 7½ shares each. This company had been incorporated by others for the purpose of conducting a livestock feeding operation.

On January 9, 1973, Makens Bros., Inc. was formed, the original incorporators of which were John J. Makens 100 shares, James Makens, Jr. 100 shares, and Ray-' mond Makens, a son of James Makens, Jr., 1 share. Although the partnership real estate was transferred to Makens Bros., Inc., the corporate stock of this company was never issued, and the land continued to be operated by John and James.

James Makens, Jr. died on January 16, 1973, an occurrence that coincided with the time of greatest financial difficulty for the Makens brothers’ partnership. Following James’ death, his sons, Raymond, Richard, and Michael (the nephews), together with John, attempted to salvage the assets which John and James had accumulated. Over the course of the next eight years, various documents were executed with diverse purposes in mind. These documents included, but were not restricted to, quit claim deeds, leases, memorandum agreements, extension agreements, invoice documents, partnership agreements, agreements to purchase, trust agreements, balance sheets, and letters. The evidence presented during the course of the litigation made it abundantly clear that a great number of these documents were executed for limited purposes, which were different from the purposes that appeared to be clear on the face of the instruments. Indeed, the trial court found that it was the parties’ prevalent practice to enter into agreements and execute documents and then to totally ignore their mandates and treat them as if they had no validity.

John and James Makens were apparently compatible business partners and had complete trust in each other, for there had been a long history of joint ventures between them. They expected that each party would be fair with the other, and, therefore, express agreements were seldom entered into. After James’ death, the trust and comaraderie that had existed between James and John did not manifest itself in the business relationship between John and his nephews.

At the time of James’ death in January of 1973, the partnership operation and the various other ventures were all in serious financial difficulty. The Northwestern Mutual Life Insurance Company had obtained a certificate of sale on the foreclose of a mortgage on the land. As of January 4, 1973, Makens Brothers had given the First National Bank of St. Paul, Minnesota, a guarantee in the amount of $1,100,000.00 to secure loans by the bank. In addition, as stated earlier, James and John each had given a personal guarantee to the bank in the amount of $750,000.00. On January 4, 1973, the indebtedness to the First National Bank of St. Paul totaled some $2,674,-000.00.

The redemption period on the defaulted mortgage was extended to March 15, 1975. As a junior lien holder, the First National Bank of St. Paul exercised its statutory right to redeem by purchasing the sheriff’s certificate of sale, which resulted in the issuance of a sheriff’s deed to the farmland to the bank on April 15, 1975. In an attempt to help the nephews save the land, E.C. Rhodes, an Aberdeen investment banker and mortgage broker, who had a good deal of confidence in Raymond Mak-ens and his mother, purchased the farmland from the First National Bank of St. Paul and had the title placed in the name of one of his employees, who on October 20, 1975, sold the land to the nephews.

At the time of James’ death, negotiations were underway to purchase Harlan Palm-quist’s shares in Cattle Company. On or about January 24, 1973, Palmquist transferred his interest in Cattle Company to John. At the time the nephews executed the January 1974 contract for deed, they were unaware of the fact that John had acquired Palmquist’s stock in Cattle Company to the exclusion of their father’s interest therein.

In May of 1973 the nephews formed a corporation entitled Makens Brothers Investments (M.B.I.).

Richard became involved in the operation of CMS in 1970 or 1971, at a time when the corporation was losing a million dollars a year. He devoted his efforts over the next several years to try to help CMS survive as an ongoing business. To that end, he and his brothers invested some $25,000.00 to $35,000.00 in the corporation after James’ death. In September of 1973, John offered to give the nephews 50,000 shares of preferred stock in CMS. In November of 1973, John was removed from the board of directors of CMS. In January of 1974, CMS “caved in.”

Early in 1974, John and the nephews decided that their joint ventures should cease and that their respective interests should be resolved. This task was virtually impossible at that time because the parties did not hold title to the real estate and there was no way to determine what the costs would be in money, credit, and effort to redeem the farmlands and restore them to the ownership of the Makens family. Moreover, the informal accounting procedures used by John and James during their business relationship made it extremely difficult to delineate their respective equities in the farming operation upon James’ death.

It clearly appears from the record that all of the parties involved had a great deal of faith in James’ son Raymond. Raymond was given the responsibilities of developing a redemption program for the Makens’ farmland and of operating the farm. Furthermore, it is clear that it was the desire of all parties concerned, including John, that Raymond be permitted to utilize all of the Makens’ properties to accomplish this purpose. Raymond, who died on November 11, 1979, was largely responsible for any semblance of order brought to the complex and convoluted business dealings regarding the farming operation.

At a meeting of the nephews and John in Chicago on January 24, 1974, M.B.I. executed a contract for deed in which it agreed to sell to Cattle Company approximately 2,673 acres of the Makens’ farmland. The purchase price was set at $125,000.00, payable January 31, 1977. On the same date a memorandum of agreement was entered into that attempted to define the obligations of John Makens and M.B.I. This agreement provided, among other things, that John and his wife would convey to M.B.I. all of their interest in the South Dakota real estate, and that M.B.I. would assume and pay the mortgage on the land held by the First National Bank of St. Paul, as well as to transfer its shares of CMS stock to John and his wife.

With respect to the execution of the January 1974 contract, the trial court permitted Richard to testify that John had called him and asked the nephews to come to Chicago. They did so, meeting with John in the office of a Chicago attorney. The conversation consisted of a discussion concerning the possibility of the nephews’ taking over CMS. Richard testified that at the time he and his brothers signed the contract for deed they were under the impression that they owned at least half, if not 100%, of Cattle Company because of the fact that it had been pledged to M.B.I. and also because their father had an ownership interest in it. Richard also testified that it was never intended that the contract for deed be enforced. He further testified that John had asked his brothers and him to sign the contract and related documents because “I need these to save my house out in Park Ridge, and they don’t really mean anything, but we will agree later on if you guys get the financing, we will sit down and work something out.” The related documents included the memorandum agreement, quit claim deed, releases, corporate minutes, and the like. Again, Richard testified that in response to questions from his brothers and himself John answered, “ ‘Well, just sign the thing.’ He said, T am in trouble with my house and the whole bit. I need to transfer my assets personally because you know what kind of financial trouble I am in, Rich,’ and we said, ‘Okay.’ So Mike, and I, and Ray walked outside, and I said to Ray, I said, ‘Well, we own Clark County Land and Cattle Company anyway’ — .” Richard testified that in response to his statement that the contract was to be used by John only to save his house and that it should never be filed, John replied, “I will never file it.” “I appreciate you boys doing this for me. I will make it up' to you some day.”

The contract for deed was amended on January 3, 1977, to extend the payment date to January 31, 1978.

Cattle Company brought an action for specific performance of the contract for deed and for a judgment for unpaid rental. The trial court determined that although it could glean sufficient evidence from the record to support specific enforcement of the contract for deed, there was also sufficient evidence to support a finding that it should not be performed but rather declared to be null and void.

The foregoing procedural and factual summary is a highly abbreviated account of the events that gave rise to the actions that resulted in this appeal. As pointed out in the trial court’s comprehensive memorandum opinion, which it adopted as its findings of fact after rejecting the proposed findings submitted by the parties, many of the acts carried out by the parties were in the nature of subterfuge, designed to accomplish an ulterior motive and to avoid the possibility of a destruction of the family business ventures. After thoroughly reviewing the evidence, the trial court found that many of the legal instruments signed by the parties had been executed for a limited purpose, and not necessarily for the purpose appearing on the face of the instruments themselves. The court found that certain of the instruments were executed merely to establish the fact that John had some interest of some nature in the Clark County real estate. As indicated above, the court further found that it became the prevalent practice of the parties to enter into an agreement and then to ignore totally its mandates and treat it as if it had no validity.

The trial court found that at the time the parties entered into the January 24, 1974, contract for deed they all agreed that John had some interest in the real estate described therein. The court also found that the parties did not know and could not agree exactly what that interest was, and that the $125,000.00 purchase price set forth in the contract was chosen merely to indicate that John had some interest in the land, an interest that would have to be determined at a later time. The court further found that John and the nephews had agreed at the time the contract was signed that Raymond should use his best efforts to redeem the property from foreclosure and that after the redemption was completed the respective shares of the parties would be determined by balancing the equity that John had at the time of the execution of the contract with the contributions made by the nephews in money, personal credit, work, personal credibility and effort in regaining the ownership of the real estate.

The trial court determined that for the purposes of the case before it, John’s interests and liabilities were the same as those of Cattle Company and the interests and liabilities of M.B.I. were the same as those of the heirs of James Makens and of the nephews. The court expressly stated that it would make no determination regarding the ownership of either Cattle Company or M.B.I.

The trial court ordered M.B.I., Michael, Richard, and Shirley Makens (the adminis-tratrix of Raymond’s estate), to convey an undivided one-half interest in all the real estate described in the contract for deed, excluding a portion previously sold, to Cattle Company free and clear of all encumbrances in settlement in full of all obligations owed to Cattle Company and to John.

The trial court also made determinations regarding current real estate taxes, ownership of grain storage facilities, and John’s right to receive a share of the 1982 crops.

DECISION

At the outset, we must determine whether this is a final judgment and thus appeal-able as of right or whether it is a partial judgment and therefore not appealable inasmuch as the trial court did not declare the judgment to be final and did not enter an express determination that there was no just reason for delay. SDCL 15-6-54(b). See Ochs v. Northwestern Nat’l Life Ins. Co., 254 N.W.2d 163 (S.D.1977). We raised this issue on our own motion and directed the parties to address it during oral argument.

We conclude that although the judgment does not adjudicate all of the claims or rights and liabilities of all of the parties inasmuch as the trial court did not determine the rights and liabilities of the parties in Cattle Company and M.B.I., with the result that the determination of that issue, and perhaps others, will have to be resolved in further proceedings, in the interests of judicial economy and in recognition of the fact that the matter has been pending far too long in this court, we will treat the judgment as being properly before us. Cf. Northwestern Engineering Co. v. Ellerman, 69 S.D. 397, 10 N.W.2d 879 (1943).

Cattle Company attacks as clearly erroneous the finding that the contract for deed was merely a memorialization of John’s unascertained interest in the land. We do not agree. As indicated above, we have not detailed all of the evidence that was presented before the trial court. Suffice it to say that a good deal of the testimony was conflicting. Accordingly, after giving due regard to the trial court’s opportunity to judge the credibility of the witnesses, SDCL 15-6-52(a), we conclude that the trial court’s findings with respect to the intended effect of the contract for deed and the other legal instruments in question is not clearly erroneous. In re Estate of Hobelsberger, 85 S.D. 282, 181 N.W.2d 455 (1970).

Cattle Company next argues that the trial court erred in considering parol evidence to vary the terms of an unambiguous written document. Again, we disagree.

SDCL 53-8-5 provides:

The execution of a contract in writing, whether the law requires it to be written or not, supersedes all the oral negotiations or stipulations concerning its matter which preceded or accompanied the execution of the instrument.

In McCollam v. Littau, 307 N.W.2d 144 (S.D.1981), we reaffirmed our long-standing rule that in the absence of fraud or mistake, evidence of a contemporaneous parol agreement is not admissible where the written contract is complete and unambiguous.

Notwithstanding the foregoing statute and our decisional law, we conclude that the trial court properly considered par-ol evidence in question under the rule that oral testimony is admissible to show that a written document was never intended to be a contract or to be of any binding force between the parties. Cooper v. Cooper, 3 Cal.App.2d 154, 39 P.2d 820 (1934); P.A. Smith Co. v. Muller, 201 Cal. 219, 256 P. 411 (1927); Hamilton v. Boyce, 234 Minn. 290, 48 N.W.2d 172 (1951); Coffman v. Malone, 98 Neb. 819, 154 N.W. 726 (1915). As the Supreme Court of Colorado has held:

We believe it to be a well-settled rule in Colorado and elsewhere that in an action on a contract executed by the parties thereto extrinsic evidence is admissible to establish that the parties did not intend it to be an exclusive, authoritative memorial of their agreement, and where they have previously agreed that their written promises are not to bind them, that agreement controls, and no legal obligations whatever arise under the contract. Such a contract is a mere sham, lacking all legal efficacy, and extrinsic parol or other extrinsic evidence will always be received on the determination of that issue.

McGuire v. Luckenbach, 131 Colo. 333, 339, 281 P.2d 997, 1000 (1955). See also Cosper v. Hancock, 163 Colo. 263, 430 P.2d 80 (1967). See generally 30 Am.Jur.2d Evidence § 1034 (1967); Annot. 71 A.L.R.2d 382 (1960).

We conclude, therefore, that the trial court properly considered parol evidence in reaching its determination that the parties did not intend the January 24, 1974, contract for deed to be of binding force and effect between them. Accordingly, the trial court did not err in adjusting the equities of the parties based upon the evidence presented to it.

The judgment is affirmed, and the case is remanded to the circuit court for further proceedings to determine the respective interests and liabilities of the parties with respect to Clark County Cattle Company and M.B.I., together with any other issues that may remain unresolved. No costs to be taxed against any of the parties.

FOSHEIM, C.J., MORGAN, J., and DUNN, Retired Justice, concur. HENDERSON, J., dissents. WUEST, Circuit Judge, Acting as Supreme Court Justice, not participating.